Investor's Advocate

Dean of the Yale Law School is Charles Clark. Last week his younger brother Samuel was dean of an impromptu law school in Washington to explain to graduate lawyers a major change in corporate bankruptcy laws which goes into effect this week. This first general revision in corporate bankruptcy laws in 40 years was passed by Congress last June. Named for its introducer, Representative Walter Chandler of Memphis, the Chandler Act is actually the baby of the SEC, whose Chairman William O. Douglas was made a commissioner in recognition of a three-year study of corporate bankruptcies. One of Bill Douglas' assistants then was Samuel O. Clark Jr., a Yale lawyer of the type Douglas, a Yale law professor, likes. Last July therefore Chairman Douglas made 38-year-old Sam Clark director of SEC's new Reorganization Division.

Chapter X of the Chandler Act smooths out many of the flaws in famed Section 776 of the Bankruptcy Act. Two principal changes are that 1) a court, in corporate reorganizations involving liabilities of $250,000 or more, must appoint an independent and disinterested trustee; 2) a court may call upon SEC for advice in any corporate reorganizations, must do so if liabilities are over $3,000,000. The commission is thus given the duty of serving as the advocate of investors and of giving courts the benefit of impartial expert opinion. These advisory reports will also be sent to all investors involved. If necessary, a court may make SEC a legal party to reorganization proceedings. But SEC has no authority either to prevent or require adoption of a reorganization plan, no power to restore lost investments in such reorganizations.

Last week the U. S. Government also did the following for and to U. S. Business:

P: Considered raising the limit on insured bank deposits. To the 13,719 U. S. banks now insured (up to $5,000 per account) by Federal Deposit Insurance Corp., Chairman Leo Crowley sent a letter asking for statistics on the number of their accounts over $5,000 in size. Recalling that Chairman Henry Steagall of the House Banking Committee had advocated increased coverage, Chairman Crowley said FDIC was willing to raise the ante if the additional risk were "very small." Previous estimates showed that about 95% of U. S. deposits were covered by the present limit. But a new estimate is in order, now that bank deposits have risen to a near-record peak of $47,500,000,000. In any case, said Leo Crowley, he meant no reflection upon bank strength--in the first half of 1938 only 38 banks failed, of which 33 were insured.

P: Cracked down on a Chicago drug chain's advertising. In the first such action since the Wheeler-Lea Act amended the Federal Trade Commission Act last June, FTC announced that upon its recommendation a U. S. District Court had enjoined Hartman stores from advertising a weight-reducing remedy named 281 because in doing so the chain had failed to reveal that use of the preparation "may be injurious to the health. . . ."

P: Cracked down upon another investment "thrift plan" (for selling securities on the installment plan over a term of years). SEC has enjoined an estimated 25% of such U. S. thrift plans from selling shares without prospectuses or with misleading information. Last week the sixth thrift plan enjoined by SEC, Lexington Foundation Inc., consented to a permanent injunction without admitting guilt.* Lexington, whose contracts total about $16,000,000, may continue in busi ness so long as it is careful to issue prospectuses which make clear such facts as that from the first $100 which an investor pays, some $70 is deducted for a service charge.

P: Began a study of banker control of industry by means of corporate proxies. As anticipated during last spring's bitter battle between Financier Robert Young and the Guaranty Trust Co. for control of the C. & O. Ry. (TIME, April 25), the antimonopoly committee subpoenaed records of that scrap from various firms including Manhattan's Guaranty Trust, J. P. Morgan & Co., Bankers Trust Co.

* The other five and the amount of their contracts: Benjamin Franklin Foundation, Inc., $4,000,000; Income Estates of America, Inc., $20,000,000; Capital Savings Plans, Inc., $25,000,000; Financial Independence Founders, Inc., $19,000,000; Continental Guaranteed Deposits Co., Inc., $110,000.

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